The decision of buying a distressed property has always been a topic of debate. While conservative consumers tend to stay away from such deals, the risk takers see them as an opportunity to get hands on a lucrative and otherwise unaffordable property.
Post demonetization and later RERA, cash has been in a shorter supply as compared to the kind which was in circulation earlier. The cash crunch burdened the small developers and promoters who needed a huge amount of capital to be infused into each project, thus putting tremendous pressure on the balance sheet.
Unavailability of funds and slow movement of the projects in the real estate market has given birth to a whole new crop of distressed assets. Property buyers reportedly have a range of opportunities across retail and office assets, single residential units, and even entire projects at attractive valuations.
While smart property buyers can hit a jackpot with these opportunities, it is extremely important to be cautious before taking the plunge. Here are some of the factors to keep in mind while buying a distressed property:
- Know The Cause:
The process of acquiring distressed property should begin with due diligence. The reasons for the distress sale need to be well-researched. Issues like policy changes impacting the property, title issues, etc. may result in more pain than gain.
- Assess Debt:
It is also vital to investigate the existing debt against the asset, which the buyer will need to take on post the purchase of the property for the complete understanding and better decision making.
- Legalities:
An investor must ensure that the development of the asset has been done in adherence to all regulatory norms with all statutory approvals in place, Divya Seth Maggu, Associate Director, Valuation & Advisory Services at Colliers International India, mentioned to Financial Express. Do the complete research and then make the informed decision else you will end up with a few unwanted and may be ugly surprises.
- Cost Viability:
Hire a financial consultant to know the exact cash flow over the purchase of the distressed property. The physical condition of the asset needs to be assessed well and so is any litigation. One should have a clear plan to overcome the litigations and make the property commercially viable.
5. Future Perspective:
Make a clear development plan or utilization of the asset with a vision on the eventual monetization so that the whole process of acquiring the property becomes worthwhile.